The study was conducted to investigate the effect of performance management system on employee performance in Ethiopia FHI 360. To achieve the research objectives cross-sectional research design was applied. Target populations for this study were staffs into Ethiopia FHI 360. The sample size drawn was 147. In this study systematic random sampling was used to select samples. Data for the study were gathered through questionnaire survey. Descriptive, causal research method and correlation coefficient used to investigate the relationship between variables. The study concluded that PMS has influence on employee performance. The correlation between performance planning, performance-based reward system, performance-oriented training system and performance feedback and employee performance was positive, while there was negative correlation between employee performance and performance appraisal. The study recommended for the PMS to be effective in improving employee performance the project need to pay attention to performance-oriented training system, performance-based reward system and performance feedback.